The current supply glut may be drawing to an end as traders begin draining hidden stockpiles of oil in the Caribbean.
According to Bloomberg, unnamed traders using proprietary data estimate that some 10–20 million barrels of oil has left the region since mid-February, possibly indicating that the market is rebalancing itself in the wake of last year’s OPEC production cuts.
While many Caribbean islands are better known as popular tourist destinations, their proximity to both the US and Latin American oil centres, combined with favourable tax regimes, make them ideal locations for oil depots. Grand Bahama, Bonaire, Aruba, Curacao, St. Lucia and St. Eustatius all have substantial oil-storage capacity, with the region being able to store up to 140 million barrels of oil.
The lack of official figures for oil movements in the region means that many overlook it, yet it can give vital clues during periods of market uncertainty. The quoted traders indicate Chinese oil companies as leading the withdrawal of stock, with Indian oil refiners also taking crude out.
While much of this crude will end up being refined into petrol or diesel for automobiles, even synthetic oils like Mobil 1 New Life 0W/40 are often derived from crude oil, albeit with an advanced refining process.
The gap between the spot price and the forward price has also narrowed drastically since the OPEC accord, removing the incentive for traders to buy oil on the spot market, sell it on the futures market and store it in the meantime.